Yields on core European bonds went for a slide yesterday as prices rose in response to the ECB's decision to leave its QE programme unchanged – for now at least. Elsewhere, the USD continues to make gains on its peers.
Article / 01 August 2016 at 11:00 GMT

Mid-session Europe: Deteriorating data from the UK

Saxo Markets


Foreign exchange

The European Manufacturing PMIs shows France being in line but still contracting (at 48.6 for July), while Germany came in above expectations at 53.8 vs. expected 53.7. Eurozone Manufacturing PMI also shows expansion at 52 vs 51.9 expected. UK Manufacturing PMI contracted further at 48.2 vs expected 49.1. Hence it is fueling the Bank of England possible restart of stimulus and rate cut on Thursday 

On the Continent, once again banks are in focus, in particular Southern European banks. After markets closed on Friday the European Banking Authorityy, EPA, had come out with its latest stress test results and as expected Banca Monte dei Paschi did perform poorly while in general banks did better than in an earlier stress test. Italian banks are burdened with an enormous surfeit of non-performing loans, and Rome is working/debating with Brussels over a potential solution. 

Stress test results in general were not that bad, but neither good enough to really European support equities. In Asia shares were up to a one-year-peak after dissappointing US data suggested a lowered likelihood for a 2016 US rate hike.

  • US Jul Manufacturing PMI (1345 GMT)
  • US Construction Jun Spending (1400 GMT)
  • US ISM Manufacturing (1400 GMT)

Forex developments
EURUSD:EURUSD is finding support now at the 55-day moving average at 1.1158 area, with decent technical resistance coming in at 1.1234 (the 100-day MA). Note that from the highs of June 24 to the lows of the same, post-Brexit day EURUSD’s 50% level lies at 1.1169. If we close day above that point, then the 1.1230 area opens up (the 61% Fibo level and around the aforementioned 100-day MA).
GBP: news continue to disappoint, with Manufacturing PMI showing more contraction than expected for July, increasing the case for rate cut and restarted QE of around 75bn in purchases until end of year. The case for weaker GBP continues, but the risk upside is if BoE does not live up to the market expectations.

Commodity currencies: AUDUSD with overall better Chinese PMIs and a rate cut expectations built in from RBA tonight, risk might be more for upside. 100 day moving average at 0.7487 and has been decent support. We like a close above 0.7600 after RBA for confirmation of upside move, or close below 0.7420 for test of 0.73.

FX Options volatilities
Vols 20160801
Vols offered across most currency pairs. Most offered are TRY options, as spot made a move well below 3, as the Turkish government has released some prisoners etc. Still some buyers of central banks days, and other events which are sticking out on the offered curve, eg. Intra week AUD options are bid with RBA coming up.

Fixed income
FI 20160801

Commodities 20160801


Equities 20160801

European stocks slipped Monday. Even though Germany’s DAX 30 was up 0.5% at 10,392, other European indices like France’s CAC 40 reversed course to lose less than 1 point at 4,439.68. The U.K.’s FTSE 100 lost 0.1% at 6,720, with bank shares losing steam following stress-test results for the industry, and as an update on Eurozone manufacturing activity showed further slowing.
Markit said its final Eurozone manufacturing PMI for July came in at 52.0, up from a flash estimate of 51.9, and from June’s reading of 52.8. Markit’s final reading of U.K. manufacturing activity in July also deteriorated, falling to the lowest since early 2013, to 48.2. That’s down from a flash estimate of 49.1.
Bank shares faced headwind this morning. The stress tests were aimed at showing how much capital, or cushion against losses, banks would have left on their balance sheets in a severe downturn. Italian, Irish and Spanish banks put in the worst performances of the 51 firms tested. Banks that suffered hits to their capital buffers in the test scenarios included Italy’s UniCredit SpA, London-based Barclays PLC and German lender Deutsche Bank AG. UniCredit and Barclays opened higher but have since flipped lower, losing 5.1% and 1.4%, respectively. Deutsche Bank shares also gave up gains, trading 1.4% lower.
However, the Italian lender Banca Monte dei Paschi di Siena SpA traded up 4% although its results fared the worst. But the bank’s board on Friday approved a plan to unload some of its nonperforming loans and raise fresh capital, moves aimed at fending off a government bailout.

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Mid-session Europe is part of TradingFloor's stable of commentary running through from the US close, through Asia to the European session. Click below to keep abreast of all the developments as they happen.

Andrea Enria
 Andrea Enria is currently chairing the European Banking Authority, 
which just published its latest stress test. Photo: EPA

— Edited by Clemens Bomsdorf

The Global sales Trading desk is a multi-asset team providing customised trading solutions


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